Sif N : Group HY 2022 earnings call

Sif Group Interim 2022

Result

Friday, 26th August 2022

Transcript produced by Global Lingo

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Sif Group Interim 2022 Result

Friday, 26th August 2022

Sif Group Interim 2022 Result

Fred van Beers: A very good morning, everybody, and welcome to the SIF Interim Results presentation of the half year numbers of '22. My name is Fred van Beers, CEO of Sif. And with me is Ben Meijer, our CFO. And we together try to explain and expect to explain to you what we did in the first half year.

Live with us are sell-side analysts from Dutch equity brokers and independent analysts. And on the conference call, we have analysts from Norway and the UK. So, if you have any questions or a remark that relates to the presentation, you are invited to use the button and instructions will follow after this presentation on how exactly to do this all.

Let's go to the next page, which is already on the screen, I see, at least here. And what you see, this - this page is all about safety. First of all, here in this meeting room for those of who are present here, there is no test foreseen. So, whatever you hear and even if it is a test, the message is follow the green signs of the exit, listen to the employees of this place, and they will guide you to a safe place.

Looking at the results of the first half year on safety, we cannot be satisfied. From what you see here on the screen, our lost time injuries were up to five in the first half of this year, leading to a lost-time injury frequency of 8.9%, which is a running 12-month number. Showing clearly that over the last year, we've seen a quite significant increase in the lost time injuries. And that, of course, is a bit of a concern to us because we spend a lot of time, effort on cultural change instructions, training and what have you. But we basically see two reasons here that surface why this number is so high.

One is the increasing inexperience of people and workforce that we hire. But it's like in any industry, a big problem to find the right people. And we have concluded that we need to invest a lot more time and effort in order to bring people up to a sort of basic level to make them work some sort of safe in our factory, especially in Roermond.

Because why am I saying Roermond, the products have increased to such a size that it becomes extremely risky, so to say, or let me put it differently, the risk of running into an accident leading to an injury has increased massively because of big products in quite limited space in Roermond. So, we are working on this. We are not happy with that because it's something that you don't want to show as a company active in this business.

Secondly, the sickness rate, you see 7.2% first half, that looks high. It is though in balance with the industry at this moment, and it's coming down quite rapidly. The reason why it's so high was in the first quarter and as part of the second quarter, high numbers due to COVID. A lot of infections again and flu, to be honest, which led to a high sickness rate.

Let's go to the next page. So, what did we do from an operational perspective? We worked on quite a number of projects. I think they're all known to you to most of you. Hollandse Kust Zuid was completed from a production perspective. They're painting mainly. And as we speak now, we have the last few monopiles at our sites, the rest being installed in the field already.

We furthermore worked on the Dogger Bank projects that's on the top right side, where you see the installation of the first monopiles and transition pieces at the Dogger Bank A in May. We are full-fledged busy now with the production of Dogger Bank B transition pieces and the monopiles. And the Hollandse Kust Zuid north project is fully up and running in our factory.

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Sif Group Interim 2022 Result

Friday, 26th August 2022

So, we're working on quite some projects simultaneously. Dogger Bank has been, as I already said it in relation to safety, an interesting project so far for us because it's the biggest - these are the biggest foundations we have produced so far with weights ranging between 900 and 1,300 tonnes per monopile and a diameter close to nine metres already.

Furthermore, we have been steadily, I would say, working together with - or Siemens has been working on the Hollandse Kust Zuid project. You see that on the bottom left picture, the Osprey, the ship doing the installation for Hollandse Kust Zuid turbines running quite smoothly, I must say, and in good cooperation. We're pretty happy with that order and with this cooperation.

And then the last project we completed and has been finalised nearly by means of the turbine installations itself is the Maasvlakte 2 project, small project, but at our front door. So, we're happy to show that to our people - the people visiting us that we actually can supply also nearby monopiles. Everything running smoothly there.

Next page is about the future. So, what did we do from a contract win perspective in the first half year? Basically, two orders for '23 resulting in the fact that '23 starts looking quite nice and full with more balanced spread over the production factories, small production lines and bigger production lines. One is the transition pieces for He Dreiht.

We would have loved to deliver the monopiles as well. But unfortunately, we had to step out of the monopile programme since we were fully booked already for that period with 64 transition pieces, 36 kilotons, very nicely as an addition to the exist already booked orders for monopiles, and not yet to be disclosed project and also for transition piece, I can tell you, is for 19 kilotons, where we have signed a capacity reservation, which is already leading to some - has led to some financial commitments from our customers. So, it's very close to becoming a disclosed project, let me put it that way.

These two projects, of course, do not include the 400 kilotons that we are discussing for the new factory. Yeah. That's on top of this still to be finalised. And I will come back to that a little bit later how that is progressing, the new build project.

So, for now, I hand over to Ben to go a bit in depth through the numbers, and I'll come back for a few slides after him.

Ben Meijer: Thank you, Fred. So indeed, where did this bring us in terms of numbers? Production came in at 89 kilotons, which was almost equal to the first half of last year, slightly better. Equally important is also the number of foundations we produced. In the first half of 2022, we manufactured 74 monopiles and 55 transition pieces compared to 102 monopiles and three transition pieces in the first half of 2021.

For the full year 2022, we expect an output of around 174 kilotons, implying that production for the second half will be close to 85 kilotons, reflecting also the holiday effect so that should do a little bit less production in the second half compared to the first half. Contribution margin, in absolute numbers, improved with more than 10% compared to the first half of 2021. And this was mainly related to increased marshalling income and income from other activities, including, KCI the Engineers.

If we look at important perimeter, contribution margin per tonne, clean for the contribution from marshalling and other activities, so that you purely look at the contribution margin per

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Sif Group Interim 2022 Result

Friday, 26th August 2022

tonne for monopiles and transition pieces, we see a number of €612, which is in line with the first half of 2021.

EBITDA on an adjusted basis, that's EBITDA cleaned for the one-off impact of costs you have to make in relation to the expansion product- - projects came in at €21.1 million, which is slightly above prior year. And as mentioned, the adjustments to come to underlying EBITDA to adjusted EBITDA related to the one-off expenses for the expansion plans of our production facilities.

Reported EBITDA €19.1 million, and for the full year, we confirmed that our adjusted EBITDA is expected to come in slightly ahead of prior year. And last year, we reported a number of €39.4 million. As mentioned before, working capital was volatile over the quarters and was negative with €42 million, with the exception of IFRS 16-related lease liabilities. We have no external debt and the cash position was reported at €58 million at the end of the first half.

As explained before, it's a snapshot situation. If you look at working capital, if you look at cash, it's interrelated to business and depending, amongst others, on the status of projects, invoicing, and payment behaviour. Next slide, please.

We have defined three important non-financial KPIs on which we have also requested Ernst & Young to provide limited assurance for full year reporting, so not for the half year numbers. If you look at the CO2 emission per tonne, it slightly increased and this is directly related to the product mix. And the reason is that in the first half of 2022, we have produced more transition pieces, and this implies more ship movements with our subcontractor Smulders in Hoboken to apply secondary steel.

Footprint from these extra ship movement was partly compensated by conversion of gas preheating to electrical preheating at seven workstations. If we look at net CO2, it was zero, which is directly related to the wind turbine at the Sif site in Rotterdam.

Second KPI, which we introduced by the end of last year is related to the contribution of Sif to the renewable energy, which increased to 803 megawatts in the first half of 2022 compared to 476 megawatts in the first half of 2021. And for me, a more real number is, if you look at 803 megawatts, it basically reflects 800,000 households. So also in the first half of 2022, our contribution from this perspective was to supply energy for 800,000 households.

KPI for safety is LTIF and a number of lost-time incidents in relation to every million where man hours worked. And as explained already by Fred, this number was too high in the first half of 2022, and also measures have been taken to reduce this number.

Then brief slide regarding the operational situation per today. And if you look at today's situation, everybody knows that we are in a more or less confused world, and we can say that still both plates and flanges for our order book are secured. The pass-through pricing of steel to Sif is more or less irrelevant. This is, however, different for energy cost.

So, if you look at energy costs, this is indeed directly impacting our bottom line. And if we look at the first half of 2022 compared to the first half of 2021, we see a negative impact from energy prices on the bottom line of €2.5 million.

Adjusted EBITDA is slightly ahead of prior year, and this negative impact was offset by, amongst others, increased result in the marshalling segment.

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Sif Group Interim 2022 Result

Friday, 26th August 2022

An actual operating challenge today is the drought and the low water levels in the various rivers. Products steel plates to Roermond and cans to Rotterdam are transported at the moment in smaller batches. At the short term, we are able to mitigate shortage by buffering sufficient stock in Roermond and Rotterdam, but that's at the short term. So also indeed by the end of September, at some time, it needs to start raining again.

Tender activity is unchanged with special attention for sourcing of steel. Recruitment activity is very high. That's the challenge we face at the moment. Also, if you look at staffing, if you look at personnel to find right qualified people is an additional challenge to make sure and to secure that we have a flawless operation.

Please turn to the next slide, where I hand back to Fred.

Fred van Beers: Thank you very much, Ben. So, I think this picture is known to everybody. We've shown it consistently over the years, I think. But well, basically, the message is, and that's unchanged. The step changes have been there in the past but have become increasingly bigger if you look at them individually.

And I think at this moment or we know at this moment, we are facing a step change towards the 14 to 15 megawatt turbines, if not bigger. And the step change we have to make is also the biggest in our history, to be honest. And that's why we are very, very carefully working on this. And unfortunately, we had to postpone the FID. We had hoped to be able to give full disclosure before the summer break. But, well, we have decided to take our time as needed. We will come back to you as soon as possible when we know exactly when we can disclose.

I think a few things are important here. First of all, and this has been - and I'm only echoing, I think, others in the supply chain. The supply chain is tight and all supply chain parties are facing the same challenge of how am I going to earn back my investment? So, profit levels throughout the supply chain have to be healthy and have to be consistently healthy in order to justify a quite substantial investment that not only us, but others have to take.

And we've communicated this before, but a three-year earn back, maximum four year is definitely a very strict, I would say, condition that we want to fulfil in order to go to an FID moment here. And having said that, we are positive in respect of reaching that point and not only an earn back period, but also later on, of course, some earnings for the shareholders and the company itself because earn back is one thing. After that, you need to earn your money even more. Isn't it?

And this is the - basically this is one of the elements that we are working on. As said, we are still very positive that we can reach this moment, but we're not going to disclose anything before we are sure on this. And I think the other element I'd like to mention is related to permits. We're working on that as well, but we want to be sure that both on the nitrogen, which is in Holland, an interesting debate has to be secured before we are taking an FID. And the same, to a lesser extent, relates to the environmental permit and the building permit, which, from a process point of view, has to be 100% under control.

Having said that, I'd like to move on to the next slide, and that shows the market. And again, this is a picture we've shown before. I think two very important things have happened since the last - since we last met. That is this announcement from the Dutch, Danish, Belgian, and Germans, so to say, to further increase their ambitions, which has been put in this number,

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